Budgeting best practices and how to plan for the unexpected

2023 has been a wild ride for businesses and individuals alike, with no end in sight yet to the madness. That’s why mastering the art of budgeting is a must for pretty much everyone.

Effective budgeting is the compass you need for financial stability to weather the economic storm we’re facing. We’ve got the lowdown on best practices for robust budget planning and strategies to shield your finances from the unforeseen, ensuring you're always one step ahead in your financial planning.

Let’s dive in.

Budgeting for HNW individuals

For high-net-worth individuals in the UK, sophisticated budgeting extends beyond mere tracking of income and expenses - it’s a critical component in preserving and growing wealth.

Investment strategy

Your budget should reflect your investment goals at all times, balancing between liquid assets for short-term needs and long-term investments for growth and wealth preservation. This ratio can move up or down depending on the broader economic environment.

Lifestyle cash flow management

Keep meticulous spending records to avoid lifestyle creep, which can erode wealth over time. Use tools like digital expense trackers that can categorise spending and highlight trends, or hire an accountant to keep track of your spending.

Estate planning

A portion of your budget should be dedicated to estate planning. This includes regular reviews with a solicitor to update wills and trusts, considering whether any new assets or sales have inheritance tax implications, and updating your legacy plans in line with any changes in your life.

Implementing these practices will help to secure your wealth and impact for generations to come - and that’s priceless.

Budgeting for small businesses

Small businesses are the backbone of the UK economy, but they’re going through a tough time right now. Budgeting, therefore, becomes an essential aspect of not just surviving but thriving. Here are essential budgeting best practices tailored for small business owners.

Contingency funds

Heard about an emergency fund for your personal life? Businesses need one, too. Set aside a contingency fund, typically 5% to 10% of your annual revenue, to cushion against unforeseen business disruptions.

These funds are a lifesaver for when the unexpected happens, like clients dropping like flies. Give your business a head start and yourself peace of mind when the waters turn rocky.

Scalable spending

Keep fixed costs to a minimum. Use flexible spending structures where possible so that variable costs can be adjusted in line with business activity to help cushion for lean periods.

Regular financial review

Conduct monthly or quarterly reviews to compare your budgeted projections with actual financial performance. This will help identify trends, control costs, and adjust pricing strategies as needed.

Review taxes

We know, snooze, right? But staying informed about your businesses’ tax liabilities such as VAT, corporation tax and business rates, can make or break your company’s success. Regularly setting aside funds to cover these taxes can prevent a large, unexpected dent in your finances.

By sticking to these budgeting practices, small businesses in the UK can strengthen their financial footing, making them resilient in the face of adversity.

Budgeting best practices for freelancers

Freelancers navigate a unique financial landscape, often marked by irregular income streams and personal responsibility for business expenses. It can be terrifying when work suddenly dries up, but there are ways to counteract the leaner months with clever budgeting hacks.

Accurate income forecasting

Basically a fancy phrase for ‘work out your minimum’. What’s the lowest you’ll be paid for a month, bearing in mind ongoing contracts? 

You can develop a forecast estimate based on your lowest-earning figure. This will help you to stop overestimating your income and undersaving when the calendar’s empty.

Tax preparation

As a freelancer, you're responsible for calculating and paying your income tax and national insurance contributions. Make use of HMRC’s free online tools to set aside the correct amount monthly so you're not caught off-guard by your Self Assessment tax bill.

Need some help getting your head around everything to do with your taxes? BXD Accounting is ready to get started with your Self Assessment. Just drop us a line to get started.

Retirement planning

Invest in a self-employed pension plan like a Self-Invested Personal Pension (SIPP) or a National Employment Savings Trust (NEST) to ensure long-term financial security. Regular contributions, even if small, can compound over time.

Expense tracking

The bane of every freelancer’s life is keeping hold of all those receipts for your solopreneur career. But if you keep track of these diligently, it can pay off in spades as you can offset these expenses to reduce your overall tax liability.

Wrapping up

No matter what your financial status is, embracing the budget helps to make you financially bulletproof. As you plan for the expected and save for the unexpected, you’re betting on yourself to succeed during turbulent economic times.

Need some more advice on what steps to take? BXD Accounting has your back. We’re on hand to advise you about your tax planning needs.